Yen Rises to 12-Week High

The yen rose to a 12-week high against the euro and its strongest in two months versus the British pound as Japanese investors cut bets on higher-yielding assets abroad.

Investors pared so-called carry trades on concern the global economy is slowing after a report showed Japan's economy contracted last quarter. The yen climbed to a two-year high against New Zealand's dollar and the strongest in four months versus Australia's as prices of commodities the nations export extended declines. The yen also rose for a third day against the U.S. dollar as financial companies led stocks lower worldwide.

The yen, which gained against all 16 major currencies tracked by Bloomberg, rose to 161.62 per euro, the strongest since May 21, before trading at 162.02 as of 7 a.m. in New York, from 163.11 yesterday. Against the dollar, the yen climbed to 108.97, from 109.27. The U.S. currency was at $1.4871 per euro, from $1.4926 yesterday, when it reached a 5 1/2-month high of $1.4816.

Japan's economy, the world's largest after the U.S., shrank an annualized 2.4 percent in the three months ended June 30 after expanding a revised 3.2 percent in the first quarter, the Cabinet Office said today in Tokyo. The U.S. economy contracted in the fourth quarter of last year, official figures show.

In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The Bank of Japan's target lending rate is 0.5 percent, the lowest among major economies. Benchmark rates are 4.25 percent in Europe, 7.25 percent in Australia and 8 percent in New Zealand.

Japan's currency advanced to 95.01 per Australian dollar from 96.29, after earlier reaching 93.15, the highest level since April 14. It also rose to 76.07 versus the New Zealand dollar from 75.20, climbing as high as 73.98, the strongest since Aug. 25, 2006.

Yen Rises to 12-Week High, Bloomberg
8/13/2008 6:42:12 AM